Annex C

PENSION CREDIT EXAMPLES

Note: All figures in this Annex are illustrative, and based on estimates of likely benefit rates in 2003/4 prices.

Background

1. Pension Credit has two elements:

a guarantee credit - an assumed guaranteed minimum income of £100 per week for a single person and £154 for a couple. This amount will be increased for those who have high applicable amounts under Income Support, that is, those receiving the severe disability premium, those receiving the carer premium, polygamous relationships and those with housing costs;

a savings credit - a cash addition to reward savings of single people with incomes up to £135 per week and couples with incomes up to £201 per week. These incomes will be increased commensurate with the high applicable amount cases mentioned above.

2. The savings credit may be payable to those with income below the guaranteed minimum as well as those with income above the guaranteed minimum.

3. Income equivalent to the basic state pension

A single pensioner with £77 basic state pension will receive the maximum top up of £23; the total income will be £100. They have no income relevant to the savings credit 1 therefore they will not receive a savings credit.

1 SERPS, graduated pension, increments, second pensions and income from capital and investments.

4. Income above the basic state pension but below the guaranteed minimum.

Any relevant income above the basic state pension will count towards the guaranteed minimum.

A single pensioner with £77 basic state pension and £10 SERPS will receive a top up of £13 to bring the income up to the £100 minimum guarantee. The amount of the savings credit will be 60% of the relevant income above the basic state pension. Thus in this example the recipient will also receive a savings credit of £10 (SERPS) x 60% = £6, bringing the total income to £77 + £10 + £13 + £6 = £106.

If, however, the single pensioner in the above example had a basic state pension of £70, he would receive a top up of £20 to bring the income up to the guaranteed £100 level. But, the savings credit will be calculated using the balance of the SERPS after the £77 level has been reached, that is, £3. Thus the savings credit will be £3 x 60% = £1.80, bringing the total income to £70 + £10 + £20 + £1.80 = £101.80.

5. Income at the same level as the guaranteed minimum

Where the basic state pension and other income total £100 (single) or £154 (couple) a top up will not be appropriate but the maximum savings credit will be payable if all the other income is relevant to the savings credit calculation. This maximum will be £23 (i.e. £100 - £77) x 60% = £13.80 for a single person and £31 (i.e. £154 - £123) x 60% = £18.60 for a couple.

A single recipient with £77 basic state pension and £23 other relevant income will receive a savings credit of £13.80 making the total income £113.80.

A couple with £123 basic state pension and £31 other relevant income will receive a savings credit of £18.60, making the total £172.60.

6. Income exceeding the guaranteed minimum

A top up will not be appropriate where the basic state pension and other income exceeds the guaranteed minimum. A savings credit may be appropriate but the maximum £13.80 or £18.60 will be reduced on a sliding scale of 40% for every £1 of relevant income above the guaranteed minimum level.

A couple has £123 basic state pension and £60 SERPS. The total (£183) exceeds the guaranteed minimum (£154) by £29. Thus, the maximum savings credit of £18.60 will be reduced by 40% of £29 (£11.60) making it £7. The total income will be £123 + £60 + £7 = £190.

The income level at which the maximum savings credit will be completely eroded is £135 for a single person and £201 for a couple.

Calculation - higher requirements

7. The above examples relate to the majority of recipients. However, severely disabled people, carers, and those with housing costs will have higher requirements (members of a polygamous relationship will also fall into this category).

8. The guaranteed minimum for these groups will be increased as follows:

severely disabled people - by the amount of the Income Support severe disability premium making it £140 for a single person and £194 for a couple;

carers - by the amount of Invalid Care Allowance making it £140 for a single person and £194 for a couple;

those with housing costs - by that amount.

9. The maximum savings credit will be payable if their basic state pension and other relevant income total £100 (single) or £154 (couple) and will remain payable until their relevant income exceeds their personal guaranteed minimum.

10. Income below the guaranteed minimum for normal requirements

A single severely disabled pensioner aged 70 has £77 basic state pension, and £3 income from capital. A top up of £60 will be payable to bring his income to the £140 personal guaranteed minimum. As income from capital is a relevant income, a savings credit (£3 x 60%) = £1.80 will also be appropriate. The total income will be £77 + £3 + £60 + £1.80 = £141.80.